London hotels are the most profitable in Europe, according to a new report by TRI Hospitality Consulting.

Its Hotels 2006 Europe survey of de luxe and upscale hotels in 13 key European cities found that lower labour costs had helped push the capital to the top of the profitability league.

It's not just London cashing in on cheap labour, however, as five out of the six most profitable hotel cities - based on income before fixed costs (IBFC) as a percentage of turnover - were British. All have lower labour costs than their European counterparts, except for Munich.

"Payroll costs in Europe are significantly higher than in the UK and London," said TRI director David Bailey. "European hoteliers have to absorb so many social costs, such as pension funds and employment protection funds."

Parisian hotels achieved Europe's highest revenue per available room (revpar) of €156.43 (£108), with London in second place at €127.83 (£88). But French hotels were also saddled with the third-highest payroll costs in Europe. Staff costs represented 41.9% of turnover in Paris, against a European low of just 27.2% in London.

As a result, London hotels' IBFC per available room of €84.48 (£58) represented 42.9% of total turnover, compared with €69.15 (£48) and 29.8%, respectively, in Paris.

Brussels and Vienna were the least profitable hotel cities in Europe and they faced the highest staffing costs in the survey. IBFC in Brussels and Vienna represented just 24.1% and 24.5% of turnover respectively, while payroll costs gobbled up 42.7% and 43.7%
of sales.

By Angela Frewin